Right Now, Metaverse is an Idea, as Was the Browser in 1992

The character-based internet evolved in the mid-1990s with the advent of the web browser https://en.wikipedia.org/wiki/Mosaic_(web_browser) and the subsequent development of the World Wide Web, an audio and video capable internet. The web also enabled new revenue models, especially advertising and e-commerce, with new payment models. 

Many would also say the web also ushered in an era of user-generated content (social media). It is the difference between a read-only internet and a read-write internet. 

source: internethistory.org 

In other words, the history of the internet suggests an evolution towards higher realism, greater enhancement of the “real world” and higher amounts of user-created content, with revenue models developing accordingly. 

Basically, those are also changes many believe will happen in the next iteration of the internet, the shift to more-immersive experiences collectively known as the “metaverse.” Keep in mind that the term was first used about three decades ago, about the time that the first browser was created. 

The point is that it might take decades for this next iteration of the internet to be commercially used on a wide basis. As always, the gestation time is far greater than many hope for or expect. 

source: McKinsey 

Key innovations such as packet switching, transmission control protocol/internet protocol, the domain name system, hypertext markup language (HTML) and the uniform resource locator (URL) were among the innovations that propelled the character-based and then visually-based internet. 

Most observers believe artificial intelligence, virtual and enhanced reality, blockchain and cryptocurrencies are important enablers for the coming transformation of experience, along with digital infrastructure changes such as edge computing, lower latency and higher-performance networks. 

The possibility exists that the “metaverse” will have less impact than many expect, in the nearer term. It might, for example, succeed in gaming without changing much existing e-commerce, education, communications or advertising. 

We are about at the place in the past when the idea of a browser was reality. We really could not foresee how the browser would lead to the range of activities, experiences and business models of the web.

40% Annual Data Consumption Increases Produce Exponential Impact on Capacity Needs

If consumer internet data consumption increases 40 percent per year, usage nearly doubles every two years and grows by 500 percent every five years. If a household consumes 435 Gbytes per month, and increases consumption at 40 percent annually, what appears to be linear growth eventually becomes exponential. 

Source: IP Carrier calculation

Even markets with relatively fixed potential, such as mobility service, which is essentially bounded by the number of living human beings, often feature such exponential growth in the early days of adoption of a new mobile next-generation network, for example. 

source: CCS Insight 

When AT&T executives say they expect data consumption to increase by five times in about five years, that is because they expect a 40 percent annual increase in consumption.

How Much More Can Service Provider Strategies Diverge?

Once upon a time, connectivity provider strategies were quite homogenous. Then came privatization, mobility, deregulation, competition and the internet. These days, service provider streategies continue to diverge.

Some things do not change: connectivity providers are in a business that is capital intensive, slow growing and subject to lots of regulation and competition. Connectivity is a “utility” type business that can have defensive moats and predictable cash flows, but carries lower price-equity ratios than many other businesses, based on the low growth rate. 

So, fundamentally, every connectivity provider has to decide to make the best of possibilities in a slow-growing business, or attempt to boost growth in some way, inside the current business or by moving outside it. 

source: McKinsey 

Many have looked at, and will move to, some form of structural separation, either voluntarily or by government policy action. Co-investment schemes are growing and some of the ownership is shifting away from public to various private forms, including institutional ownership. 

All strategy hinges on those choices. In some markets, organic growth might be possible, especially where gross revenues and profit margins are higher than average. In other markets growth by acquisition is the only feasible path. 

In yet other markets, movement into new business adjacencies might be possible. The net result will be more diversity of business models globally and between industry segments.

Metaverse Building Blocks Will be Commercially Deployed Earlier than Full Environments

As with all other applications, metaverses and metaverse-similar use cases  will require connectivity, data centers and cloud computing providers in the value chain. 

From a digital infrastructure perspective, internet of things, blockchain, edge computing, cloud computing, artificial intelligence and networks are part of the metaverse value chain. 

That means connectivity providers might play parts of roles in IoT, blockchain, edge computing or cloud, while obviously functioning most directly as connectivity providers. Data centers and computing-as-a-service suppliers will have a wider range of roles in edge computing and hosting, 

source: Sketch Bubble 

Of course, it is often difficult to define what we are talking about when we discuss “metaverse.” 

Most attempted definitions for metaverse include the idea of virtual worlds where real people interact in real time. 

Beyond virtual worlds, metaverse technologies typically include use of avatars, three-dimensional representation; bots; virtual reality; cryptocurrency, blockchain; non-fungible tokens; social networks; mobile and other devices. 

But some of those technologies also will be used to support more-realistic experiences that are “less than” full immersion in virtual worlds such as gaming. Digital twins and conferencing provide examples. It is at least conceivable that such uses might initially be more important than full metaverse worlds. 

Value chains and layers are related concepts, in that regard. Since layers are fundamental to modern computing and software, it will come as no surprise that “metaverse” also might be defined in layers. 

source: Innovius 

In principle, it is possible to use many supporting capabilities for all sorts of apps that are not intended to be full virtual worlds. And since it is easier to introduce radically-new technology in a confined manner, rather than as a wholesale “rip and replace” operation, we are likely to see many building block technologies supporting higher degrees of realism before we see successful metaverses in commercial use.

Why Most Firms Applying New Technology Do Not See Outperformance

If business, nature and life have a standard distribution, then the percentage of firms able to turn artificial intelligence into measurable financial results should also be a standard distribution. 

source: Accenture 

Lots of firms, organizations and individuals make a living giving advice about how to boost performance of all sorts. But performance in any competitive arena is a standard distribution. In any market or endeavor, nearly 70 percent of actors will cluster around a median point. You would expect about 15 percent to notably outperform, while 15 percent significantly underperform. 

source: Cate Bakos 

The point is that even if all firms applied artificial intelligence, distributed computing, private neworks, internet of things or any other innovation you can think of, most would still perform at about the same levels as most peers. 

Up to 15 percent will outperform. But those firms were likely already the top performers. They are likely to be the firms already prepared to take advantage of new technologies. 

That is not to deny the value of advice about improving performance. It is to point out that, even with available to all, new technology will result in differential results. Underachievers rarely, if ever, become overachievers because of a single applied technology. 

` `1 -*/*++Perhaps some “average” entities can elevate their performance and become high achievers. More will simply keep pace with their peers and a few might actually underperform after embracing a particular innovation. 

Silver bullets rarely exist, or work. 

Diversify or Not? Sometimes it Works; Sometimes Not

Analysts and advisors often disagree sharply about what telcos ought to do about their “growth” initiatives. Some favor “sticking to core connectivity” while others emphasize “diversifying beyond connectivity.” Service providers have tried both approaches, sometimes alternating between them, as competitive opportunities and threats come and go. 

Some service providers are fortunate to operate in markets with high profit margins. In such markets the advice to “stick to connectivity” can make sense. Others have fewer chances to grow if they stick to connectivity. In those cases diversification makes sense. 

But almost every service provider explores some growth oportunities outside the core connectivity business. How to do so remains the challenge. Growth initiatives are risky, expensive and often do not move the revenue needle very much. That applies as much to edge computing as to internet of things or private networks, for example.     

Back in 2011, KT said it hoped to generate as much as 45 percent of its revenues from non-telecom sources by about 2015. It did not reach that goal, but all the South Korean mobile operators have significant non-telecom revenues, in the 25-percent range. 

source: Korea Herald 

But KT is still investing to diversify its revenue, as are rivals  SKT and U+.

At one point, AT&T earned as much as 40 percent of total revenues from non-telco sources, before reversing course and shedding its content operations to reduce debt. 

source: GSMA 

But most connectivity providers seem interested in growing non-connectivity revenues in some way. 

source: Twimbit 

As always, strategies that work for some service providers in some markets will not work for all service providers in all markets. Still, long term, if revenue growth in core connectivity services remains anemic (flat to negative growth) it is hard to see how most service providers will survive, much less prosper, without getting into new businesses of some kind.

Why Web 3.0 is Likely to Fail in Some Ways, Succeed in Others

The whole point of Web 3.0 is a change in the architecture of the World Wide Web, where decentralization of applications is founded on user control and ownership of their data. The extent to which decentralization succeeds is based in part on the actions advertising ecosystem participants take, since the whole “centralization” of the present web is driven by the revenues made possible by centralization and scale. 

source: TBD 

Also unclear is why any businesses that profit from “centralized” architectures will voluntarily give all that up. “They will be forced to do” is the retort. Value destruction, to be sure, has been part of most internet disintermediation of the past. 

One possible outcome is that value simply is destroyed at many points of the ecosystem, reducing the value of investing. Recall that past hopes for “decentralized value creation” often have failed. Some entities have made a business out of user-generated content, to be sure. But relatively few have done so. 

About the only participants that will prosper from Web 3.0 are the venture capitalists funding startups in the space. 

Some of us would argue that decentralization in the form of disintermediation is likely to happen, but without the more-futuristic advantages of “users owning their own data.” Blockchain will be foundational. But that is likely to fuel disintermediation of value chains, not a complete change of web business architecture.  

10-Gbps Home Broadband is Coming Within 3 Years

Faster home broadband is about as inevitable as Moore’s Law would predict. Having reached the point where top speeds of 1 Gbps are the current standard, we are heading to 10 Gbps over the next half decade or so. 

Which is one reason we are going to be hearing more about 20 Gbps internet access, and why firms such as AT&T already sell commercial service at 2 Gbps and 5 Gbps in lead markets. 

 

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source: Wik Consult 

Though the demand increase will mostly make sense for multi-user households, the historic increase in top of market speeds is quite linear. That does not mean most users will buy the top-rated tier of service. The general rule is that most consumers will buy the mid-tier level of service. 

source: Commscope 

source: Wik Consult 

source: Fiber Broadband Association. 

60% of Home Broadband Non-Buyers Don't Want It

The latest data from the U.S. National Telecommunications and Information Administration continues to show why the “digital divide,” measured as use of broadband internet access, has not closed faster. 

Nationally, 81 percent of respondents report using the internet. About 71 percent say they use the internet on their smartphones. About 49 percent say they connect their laptops, while 28 percent report connecting desktop computers. 

About 76 percent say they use the internet at home. As recently as 1998, 76 percent of respondents said they did not use the internet at home. About four percent claim the internet is not available where they live. 

Most users report using both mobile and fixed networks. Some 74 percent of respondents have a mobile data plan and 71 say they buy fixed network broadband. 

“When respondents were asked why they don’t use the Internet at home, nearly 60 percent said the main reason is that they don't need it or not interested,” says George Ford, Phoenix Center for Advanced Legal and Economic Public Policy Studies chief economist. 

That finding has been consistent since at least 2015, NTIA data shows. At the same time, “cost” has declined as a reason for not buying broadband access services. Some 18 percent of “non-using” respondents said using the internet was “too expensive.” 

source: Phoenix Center 

Half of U.S. Home Broadband Customers Buy Service at 200 Mbps to 400 Mbps

About half of U.S. internet access customers buy services running between 200 Mbps and 400 Mbps. That is a shift. Until recently, about half of the customers purchased services running between 100 Mbps and 200 Mbps. 

Roughly 70 percent of fixed network broadband customers purchase service at speeds of 200 Mbps or higher. Customers who buy gigabit or faster service have reached 13 percent, while customers of services operating between 500 Mbps and 900 Mbps are six percent of total. 

source: Openvault 

ACSI Rankings Still Show Americans Unhappy with Their ISPs

The latest industry rankings of customer satisfaction produced by the American Customer Satisfaction Index show that internet service providers continue to rank dead last in customer satisfaction. That is not unusual. 

I cannot remember a time since at least the early 1980s when network-based services such as subscription TV services did not rank last to near the bottom in ACSI rankings. As usual, mobile service is the highest-ranked of the connectivity services. 

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source: ACSI 

Perhaps those rankings have something to do with the recurring nature of the charges. Most other subscription services also rank in the lower third of the industry indexes. Most of  the industries in the top half of the rankings sell products purchased episodically. 

As always, some ISPs get higher satisfaction rankings than others. 

source: ACSI 

Some industries that once were low ranked have improved. Airlines provide an example. In 2007 the airline industry had a ranking of 63. Today airlines have a rank of 75. That is very close to an all-time high for airline ACSI scores. 

Over the last four decades, few connectivity industries have improved much, though mobility service has to be the segment that climbed the most. Now scoring about 73, mobile phone service has improved since ACSI began tracking the industry in 2004.

Declining Unit Prices are an Issue for Many Industries; Ability to Scale is the Bigger Issue

Ever-declining price per unit is a common lament in the connectivity business. What we sometimes forget is that similar price drops--often of greater magnitude--also happen in computing hardware, software and services as well.

The salient difference might be that in the computing hardware business, fast retail price declines are offset by equally-dramatic shrinkage of underlying cost of creating those capabilities. 

https://issues.org/jorgenson/ 

Over the last two decades, software costs also have arguably begun to decline at faster rates as well, in part because of the shift to X as a service and cloud computing. Even there, the total cost of ownership can vary over time based on volume. At scale, private cloud might be less costly than public cloud, for example.

Still, services, software, content and communications are subject to the costs of coding, acting, writing and producing those products. 

The amount of non-computing inputs are less subject to the reduction of simple computing or storage costs. Up to 80 percent of the cost of communications is related to the cost of building and upgrading network facilities, for example. And construction costs are only slightly affected by Moore’s Law improvements. 

source: Statista

The point is that lower retail unit costs, over time, drive profit margins and gross revenues in most parts of the internet ecosystem. The salient exception is content. 

The difference is that communications unit costs do not improve as much, with scale, as do other digital products. Cost pressures are an issue for managements in every business and industry. But hyperscalers are able to reduce costs with scale in a way that connectivity providers find much more difficult. 

So it is not so much the declining unit cost, but the inability to scale that causes connectivity providers more pain.  Applications, content or other cloud-based services that are inherently global have a clear advantage there, compared to geographically-bound telcos and access providers.

SMB Marketing Remains Difficult

By some estimates, small and midsize businesses represent around 90 percent of all firms globally, represent 70 percent of employment and contribute to up to 90 percent of global gross domestic product. 

At first glance, the small and mid-sized business segment is lucrative. But most of those organizations cannot be efficiently targeted by business sales organizations. 

Consider that definitions and behavior matter. If you have ever worked for a firm selling to SMBs, you know that segmentation really matters. As a simple “cost of sales” matter, “medium” is easier to target than “small.”

In fact, the vast majority of “small” businesses can only be profitably marketed using the same channels and programs aimed at consumers. Programs aimed at “smaller” businesses start to make sense someplace beyond organizations with 10 to perhaps 50 employees, depending on the industry vertical. 

Firm classifications also vary by country. In most countries, firms with more than a dozen to a few dozen employees are quite rare. 

In many parts of Australia, for example, 97 percent of all firms have fewer than 19 employees. The International Data Corp. definition of “SMB” is a firm with “fewer than 500 employees,” but more than 20 employees. 

source" Small Business Development Corporation 

In many Organization for Economic Cooperation and Development countries, there are not so many firms in the size range of “at least 250 employees.”

In Canada, 98 percent of firms have 99 employees or fewer, for example. 

According to  the European Union, a small business employs between 10 and 49 full-time employees. By some classification systems, medium-sized organizations employ 50 to 250 full-time employees. Others might say mid-size is defined as organizations with 100 to 999 employees. 

But there is a wide range of definitions of “small” and “midsize.” Sometimes midsize firms are defined as having up to 4,999 employees. Many would consider that an “enterprise” or a “large enterprise.”

Midsize firms also can be defined by revenue. A midsize firm might have sales not exceeding €1.5 billion ($1.75 billion) or has a balance sheet total that does not exceed €2 billion ($2.3 billion).

source: World Economic Forum 

Complicating matters further, many “small” businesses are run out of the home, or have no employees beyond the sole proprietor. That sort of business often has buying behavior virtually indistinct from that of a consumer. Many classifications use the term “microsized” to describe such very-small businesses. 

In the U.S. market, for example, 83 percent of all businesses are “micro” sized, having no more than nine employees. 

“Small” firms with 10 to 99 employees represent  15 percent of all businesses, while “medium” organizations with 100 to 499 employees represent just two percent of entities. 

If enterprise is targeted directly with field sales, then “micro” (83 percent of business entities) are marketed through the mass market channels. “Small and medium” organizations tend to be marketed to by partner and channel entities. Think of the role played by resellers and system integrators and distributors in the computing hardware business. 

source: CompTIA

Metaverse Again Raises the Issue: Role is Not Revenue

José María Álvarez-Pallete, When Telefónica chairman says “the metaverse will be the most profound change the internet has undergone since its birth,” and that that “Telefónica will continue to play an essential role in this evolution of the Internet towards the Metaverse because new experiences will be possible thanks to the telcos’ networks,” he is right. 

Without internet access, provided by internet service providers, internet-delivered apps and experiences cannot be delivered. 

But Álvarez-Pallete is right mostly in the sense that, in a loosely-coupled internet ecosystem, apps can run on any compliant network. As has been true with the prior development of the internet, when the architecture is separated into layers, app access is “permissionless.”

source: Wikimedia 

Loosely-coupled architectures have important business ramifications. Among the most important implications is that organizations can participate in value chains without having direct business relationships with other key participants. 

Any lawful app can be accessed by any user with internet access, without the permission of any intermediate participant in the value chain, including specifically any provider of the internet connectivity. That business architecture mirrors the technology architecture of the internet.  

What remains to be seen is whether access providers will be passive or active participants in the metaverse. By design, they will be passive conduits, providing the connectivity all internet apps require. By aspiration, they might do other things; assume other roles; provide other value. 

Still, in a layered, disaggregated, permissionless ecosystem, metaverses can be created and accessed without formal business relationships. How much--beyond connectivity--is possible is an open question for access providers.